The Treasury has dismissed Tory claims that Gordon Brown is preparing to impose capital gains tax on homes.

Ahead of the chancellor's Budget on Wednesday the Conservatives claimed the government had refused to rule out setting a 40 per cent levy on the profits made from the sale of a house.

The Opposition argues that Treasury chief secretary Paul Boateng declined to dismiss the idea in the House of Commons on Thursday and the revenue raising idea was splashed across the front pages of several Sunday newspapers.

Shadow chancellor Oliver Letwin said ministers should give firm pledges on tax.

He told the BBC's Breakfast with Frost programme: "We heard some pretty weasel words from the prime minister before the last election about National Insurance.

"If the chancellor gives an absolute cast iron pledge that they will not do this if re-elected, then we will take that at face value.

"Then we will ask a different question which is, OK, if we are not doing that, which other taxes would Labour raise after the election to fill the black hole in their finances in that economic cycle, which the independent Institute for Fiscal Studies has estimated at £11bn."

The charge is already levied on second homes and extending it would bring in an estimated £10.5 billion in tax receipts per year and help take the heat out of the property market.

But officials described the idea as "barking mad".

"Oliver Letwin has staked his political integrity on having evidence that Treasury ministers are considering this proposal, and that a team of Treasury officials is working on it," a source close to the chancellor said.

"If so, we will be fascinated to see him present his evidence at the first opportunity so people can judge whether you can trust a word he says.

"Everyone knows it would be barking mad to impose capital gains tax on main homes: what do people think would happen to the housing market?"